Closer economic integration causes concern for Cameron

As the eurozone debt crisis rumbles on, there has been much talk about the possibility of a two-tier European Union – but to some extent it already exists. The 17 countries that use the euro share the same interest rate, set by the European Central Bank in Frankfurt, and face financial penalties if they fail to respect limits on debt and deficit levels.

Closer economic integration in the eurozone now seems almost inevitable, raising fears – especially among the ten member states not in the eurozone – that the economic policy agenda for the EU as a whole, including on the single market, could be increasingly dominated by the eurozone.

Herman Van Rompuy, the president of the European Council, tried to play down the gap last week, saying it was “perfectly natural” that countries with a common currency took decisions together.

But for the leaders of the United Kingdom, Poland and Sweden in particular, the newly created eurozone summits of 17 countries seem like a forum for taking decisions to be imposed on everyone. To address these concerns, eurozone summits will follow summit meetings of all 27 EU countries, so that the views of the ten non-members can be fed into eurozone discussions.

Cameron’s fears

David Cameron, the UK’s prime minister, has voiced the strongest concerns about the development of a two-tier EU. He fears that, as the eurozone group focuses on issues such as taxation, it might take a more protectionist line on economic issues and neglect the potential of the single market.

Cameron’s particular worry is that what he sees as “constant attacks” on the pre-eminence of the City of London as a financial centre will be redoubled if the eurozone is allowed to dominate EU decision-making. The call from France and Germany for a financial transactions tax (FTT) is seen as an example of legislation that would most severely penalise the UK, heavily reliant as it is on financial services.

Cameron is urgently seeking safeguards, and wants issues affecting the City of London to be discussed by EU leaders at their summit meetings to prevent the UK being outvoted in sensitive areas. On tax at least, his fears are exaggerated. Taxation will continue to be subject to national vetoes – the UK can block plans for new taxes at leisure. There is also opposition to an FTT from a number of eurozone countries.

Malcolm Harbour, an MEP from Cameron’s Conservative Party, is not convinced that a more closely integrated eurozone would undermine the single market – provided that all 27 member states apply single-market rules on the same basis. Besides, he says, Germany, the most powerful member of the eurozone, is “very keen” on the single market.

Instead, Harbour argues, one of the problems with Greece’s economy was that the country failed to implement single-market principles.